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What to know about readmission penalties in the new fiscal year

October 1, 2014

    Juliette Mullin, Senior Editor

    In fiscal year (FY) 2015, the maximum penalties for excess readmissions tick up again. But that's not the only change for the program.  

    A brief overview of the readmission penalty program

    Readmission penalties in FY 2015

    How much are the penalties?

    Up to 3% of Medicare inpatient payments

    What types of readmissions are considered?

    Thirty-day readmissions for patients with AMIs, pneumonia, heart failure, hips and knee arthroplasty, and COPD

    Of the three penalty programs created by the Affordable Care Act, the Hospital Readmissions Reductions Program is the most significant for FY 2015 inpatient payments. 

    When the program launched in FY 2013, it cut up to 1% of Medicare inpatient payments for hospitals with excess readmissions for patients with acute myocardial infarctions (AMIs), heart failure, and pneumonia. In FY 2014, the maximum penalty increased to 2%.

    In the new fiscal year, the maximum penalty for excess readmissions is 3%—the highest amount allowed under the ACA. And for the first time, the program will consider readmissions for chronic obstructive pulmonary disease (COPD) and knee and hip arthroplasty.

    What hospitals should know going into FY 2015

    To get an idea of what to expect from the readmission penalty program in FY 2015 and beyond, I spoke with Eric Fontana, practice manager of the Advisory Board's Data and Analytics Group.

    Questions: How have hospitals fared in the first two years of the program? Have we seen a reduction in readmissions that could be attributed to the program?

    Eric Fontana: CMS has shown data that indicate a reduction in all-conditions readmissions over the last couple of years and have attributed the success, at least in part, to programs like the hospital readmissions reduction program. 

    The bigger question is whether CMS might start to consider this improvement in how they calculate the penalties. Under the current methodology, even as the nation gets better, the penalties don't get smaller. The Medicare Payment Advisory Commission has said the program methodology is flawed for this very reason. But it's written into law, so unless they change that part of the law, the methodology is set.  

    Q: How will hospital inpatient payments be affected by the readmission reduction program in FY 2015? What are the major changes in the program for FY 2015?

    Eric: The vast majority of hospitals in the nation look set to receive some type of penalty based on the proxy rates that CMS released with the final rule. 

    “Roughly 12% of hospitals set to receive a readmissions penalty wouldn't have gotten a penalty if not for these new conditions.”

     Part of the reason is that two new conditions—knee and hip arthroplasty and COPD—are capturing some facilities that wouldn't have otherwise received a readmissions penalty when only the existing three conditions—AMI, heart failure, and pneumonia—were considered. 

    Our analysis indicates that roughly 12% of hospitals set to receive a readmissions penalty wouldn't have gotten a penalty if not for these new conditions. Some of the hospitals in that group jump straight from no penalty in FY 2014 to a full 3% penalty in FY 2015, although admittedly it's a pretty small subset. 

    How did your hospital fare? Find out with our penalty estimator

    Q: What can a hospital that faces penalties in FY 2015 do now to avoid them in later years?

    Eric: The bad news is you can't do anything on readmissions at this point to improve your inpatient payments in FY 2016. 

    Here’s why: If we follow the pattern that CMS uses for data collection, rolling the three-year readmissions period along by a year at a time, (FY 2015 penalties reflect readmissions from July 1, 2010 to June 30, 2013 so FY 2016 is expected to be July 1, 2011 to June 30, 2014) then the data collection for readmissions in FY 2016 is done. So even before the final penalties have been announced for FY 2015, the next possible year you can impact is FY 2017, which would likely be open until June 30, 2015, again, if the pattern of data collection timeframes remain constant. 

    In FY 2017, CMS will add CABG readmissions to the program.  It's probably a good idea for hospital executives to start focusing on their performance on this measure right away, as it is most likely being counted towards FY 2017 payments and will mean higher penalties for many when it's all said and done. 

    Find out how your hospital will fare in the P4P programs


    See where your organization stands in the readmission penalty program using our Customized Readmissions Penalty Estimator tool, which replicates CMS's scoring methodology and factors in the impact of new measures and modifications to scoring.

    Then, check out our customized assessment portal to access all your organization-specific analyses in one location.


    How to avoid readmissions at your facility

    Reducing your hospital's readmission rates can seem like an overwhelming task—but it doesn't have to be.

     Knowing where to focus is half the battle. We've found that the best strategies target four stages of care with significant potential to influence patient outcomes. The other half is knowing what improvements to make.

    That's where our Readmission Reduction Toolkit comes in. We've compiled resources from across the Advisory Board that will help you isolate and correct patient and systemic issues in the four critical stages of care:

    Get the toolkit now.

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